cancellation

The termination of an insurance policy or bond, before its expiration,
by either the insured or the insurer. Insurance policy cancellation
provisions require insurers to notify insureds in advance (usually
30 days) of canceling a policy and stipulate the manner in which
any unearned premium will be returned. As respects reinsurance,
cancellation is used in the following contexts: (1) Runoff basis
means that the liability of the reinsurer under policies that became
effective under the treaty prior to the cancellation date of such
treaty shall continue until the expiration date of each policy.
(2) Cutoff basis means that the liability of the reinsurer under
policies that became effective under the treaty prior to the cancellation
date of such treaty shall cease with respect to losses resulting
from accidents taking place on and after said cancellation date.
Usually the reinsurer will return to the company the unearned premium
portfolio, unless the treaty is written on an earned premium basis.
See also
Flat cancellation;
Pro rata cancellation;
Short-rate cancellation.